Kennametal Inc. today reported fiscal 2003 third quarter earnings of $0.27 per diluted share compared with earnings of $0.42 per diluted share last year. Excluding special items in each period, diluted earnings per share were $0.38 for the quarter, against last year's earnings per share of $0.53. In accordance with SEC Regulation G, the attached financial charts include a reconciliation of all non-GAAP financial measures in this release to the most directly comparable GAAP measure.
As expected, fiscal 2003 third quarter earnings included $0.08 dilution from the Widia acquisition, and $0.04 of reduced pension income.
Earnings Per Share Excluding Special Items
Company Guidance (03/27/03) $0.33 to $0.35
Analyst Estimate Range (04/25/03) $0.33 to $0.35
Earnings, Excluding Special Items $0.38
Through the first nine months, diluted earnings per share were $0.65, above last year's loss per share of $7.23. Excluding special items in each period, diluted earnings per share were $0.96 against last year's earnings per share of $1.28. The prior year included a non-cash SFAS 142 impairment charge associated with the adoption of SFAS No. 142 "Goodwill and Other Intangible Assets."
Kennametal Chairman, President and Chief Executive Officer, Markos I. Tambakeras, said, "We continued our disciplined management of the business through a quarter challenged by a faltering global economy. I was particularly pleased that our relentless focus on working capital management contributed to another quarter of strong cash flow. Despite significant weakness in our key North American and European markets in what is historically our strongest quarter of the year, we again improved our gross margins as the Kennametal Lean Enterprise, prior restructurings and ongoing pricing discipline continued to deliver additional benefits. In addition, I remain very pleased with the rapid pace and productive execution of the Widia integration. Our strong market position in all major markets is allowing Kennametal to weather a sustained period of stagnation in manufacturing."
Third Quarter Highlights
-- Sales of $459.2 million were 17 percent above last year's $393.9
million. Sales growth was driven by a 12 percent positive benefit
from net acquisitions and divestitures and a 4 percent benefit from
foreign currency exchange.
-- Gross profit margin, excluding special charges in both periods, was
33.1 percent, an increase of 40 basis points compared with the third
quarter of fiscal 2002. Manufacturing efficiencies from the
Kennametal Lean Enterprise and a benefit from foreign currency
exchange offset the combination of lower Widia margins and $0.5
million in decreased pension income. Reported gross profit margin of
33.0 percent increased 60 basis points versus the prior year quarter.
-- Operating expense for the quarter increased 26 percent, to $120.8
million, excluding special charges. Excluding $14.5 million in Widia
operating expense, $7.4 million unfavorable foreign currency exchange
and $1.7 million in decreased pension income; operating expense was
just 2 percent above prior year. Reported operating expense of
$122.6 million was 28 percent over the prior year.
-- The current quarter included net special charges of $5.2 million, or
$0.10 per diluted share, primarily associated with the previously
announced Widia integration efforts. Prior-year results included
special charges of $5.2 million, or $0.11 per diluted share,
associated with previously announced restructurings. The charges
were divided approximately evenly between the J&L/FSS business
improvement plan and the Metalworking and Electronics plan.
-- Interest expense of $9.0 million was 21 percent above the same
quarter last year on a higher average debt for the quarter,
associated with the Widia acquisition, and higher average borrowing
rates.
-- As expected, the effective tax rate, for the March 2003 quarter was
30.0 percent, compared with prior year of 32.0 percent.
-- Excluding special items, net income was $13.3 million for the
quarter; a 20 percent decrease compared to net income of $16.7
million last year including the impact of Widia dilution and reduced
pension income. Reported net income was $9.7 million against net
income of $13.1 million in the same quarter last year.
-- Decreased pension income reduced earnings per diluted share by $0.04
for the quarter versus the prior year. Pretax income for the quarter
was reduced by $2.2 million (non-cash) compared to the same period in
fiscal 2002 due to the effect of a decrease in the expected rate of
return on Kennametal's pension fund assets, coupled with lower
discount rates associated with pension and other postretirement
benefit liabilities.
-- Free operating cash flow remains strong and on plan at $26.7 million,
versus $33.1 million in the same period last year. Primary working
capital continues to be tightly controlled with its ratio to sales at
27.6 percent, versus 28.1 percent in the prior year. Primary working
capital of $523.9 million was up 23 percent, or $99 million, from the
same period last year entirely due to the impact of the Widia
acquisition.
-- Total debt was $580 million, up $169 million from June 2002, due to
the closing of the Widia acquisition.
Outlook
Global economic conditions remain weak at the beginning of the June quarter, and visibility continues to be very poor. Economic indicators in North America are mixed, with growth in durable goods orders overshadowed by weak March reports on industrial production, capacity utilization and the Institute of Supply Management (ISM - formally NAPM) index. The outlook in Europe is even more uncertain, with Germany in particular at risk for further declines based on the most recent macroeconomic indicators.
Tambakeras said, "While weak markets are expected to constrain our top- line in the June quarter, we continue to execute on key initiatives positioning the company to leverage earnings growth when the global economies recover. As the new head of metalworking, Carlos Cardoso will advance programs to further differentiate the solutions that we provide our customers. The Widia integration will continue to enhance the breadth of our product offerings and our global reach, particularly into growing Asian markets. These will be supported by ongoing product innovation, efficiencies from the Kennametal Lean Enterprise, and sustained cash flow generation."
Based on assumptions that the second quarter of calendar 2003 will be similar to the just completed March quarter, sales for the fourth quarter of fiscal 2003 are expected to grow 15 to 18 percent year-over-year. Reported diluted earnings per share are expected to be $0.17 to $0.37 per share. This includes an estimate for special charges associated with the Widia integration and restructuring programs of approximately $0.06 to $0.21 per share. Excluding these charges, diluted earnings per share are forecasted to range from $0.38 to $0.43 per share. The earnings forecast also includes $0.02 of dilution from Widia.
Kennametal anticipates net cash flow provided by operating activities of approximately $150 to $155 million for the year. Purchases of property, plant and equipment and proceeds from disposals of property, plant and equipment are expected to be approximately $50 to $55 million, net. Adjusting net cash flow provided by operating activities for the above items, Kennametal expects to generate at least $100 million of free operating cash flow for the year, per earlier guidance.
As previously announced, a reduction in pension income is lowering diluted EPS for the fiscal year by $0.17 per share, or approximately $0.04 per share per quarter.
Kennametal advises shareholders to note monthly order trends, for which the company makes a disclosure ten business days after the conclusion of each month. This information is available on the Investor Relations section of Kennametal's corporate web site at www.kennametal.com.
Dividend Declared
Kennametal also announced its Board of Directors declared a quarterly cash dividend of $0.17 cents per share, payable May 23, 2003, to shareowners of record as of the close of business May 9, 2003.
Third quarter results will be discussed in a live Internet broadcast at 10:00 a.m. today. Access the live or archived conference by visiting the Investor Relations section of Kennametal's corporate web site at www.kennametal.com.
This release contains "forward-looking" statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. You can identify these forward-looking statements by the fact they use words such as "should," "anticipate," "estimate," "approximate," "expect," "may," "will," "project," "intend," "plan," "believe," and others words of similar meaning and expression in connection with any discussion of future operating or financial performance. One can also identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements are likely to relate to, among other things, our goals, plans and projections regarding our financial position, results of operations, market position and product development, which are based on current expectations that involve inherent risks and uncertainties, including factors that could delay, divert or change any of them in the next several years. Although it is not possible to predict or identify all factors, they may include the following: global economic conditions; future terrorist attacks; epidemics; risks associated with integrating and divesting businesses and achieving the expected savings and synergies; demands on management resources; risks associated with international markets such as currency exchange rates, and social and political environments; competition; labor relations; commodity prices; demand for and market acceptance of new and existing products; and risks associated with the implementation of restructuring plans and environmental remediation matters. We can give no assurance that any goal or plan set forth in forward- looking statements can be achieved and readers are cautioned not to place undue reliance on such statements, which speak only as of the date made. We undertake no obligation to release publicly any revisions to forward-looking statements as a result of future events or developments.
Kennametal Inc. aspires to be the premier tooling solutions supplier in the world with operational excellence throughout the value chain and best-in- class manufacturing and technology. Kennametal strives to deliver superior shareowner value through top-tier financial performance. The company provides customers a broad range of technologically advanced tools, tooling systems and engineering services aimed at improving customers' manufacturing competitiveness. With about 14,500 employees worldwide, the company's annual sales approximate $1.8 billion, with nearly half coming from sales outside the United States. Kennametal is a five-time winner of the GM "Supplier of the Year" award and is represented in more than 60 countries. Kennametal operations in Europe are headquartered in Furth, Germany. Kennametal Asia Pacific operations are headquartered in Singapore. For more information, visit the company's web site at www.kennametal.com.
FINANCIAL HIGHLIGHTS
Consolidated financial highlights for Kennametal Inc. for the quarters and nine-month periods ended March 31, 2003 and 2002 are shown in the following tables (in thousands, except per share amounts).
Consolidated Statements of Income
Quarter Ended Nine Months Ended
March 31, March 31,
2003 2002 2003 2002
Net sales $459,243 $393,852 $1,295,192 $1,180,844
Cost of goods sold 307,582 266,205 875,079 806,893
Gross profit 151,661 127,647 420,113 373,951
Operating expense(1) 122,592 95,695 343,104 288,711
Restructuring and
asset impairment
charges 3,269 3,944 11,649 22,650
Amortization of
intangibles 1,196 728 3,310 2,107
Operating income 24,604 27,280 62,050 60,483
Interest expense 8,979 7,421 27,058 25,076
Other expense
(income), net(2) 713 (14) (414) (179)
Income before provision for
income taxes and minority
interest 14,912 19,873 35,406 35,586
Provision for income taxes 4,474 6,359 10,622 11,387
Minority interest 739 370 1,786 1,071
Income before cumulative
effect of change in accting.
principle 9,699 13,144 22,998 23,128
Cumulative effect of change in
accounting principle, net of
tax(3) - - - (250,406)
Net income (loss) $9,699 $13,144 $22,998 $(227,278)
Diluted earnings (loss) per
share $0.27 $0.42 $0.65 $(7.23)
Dividends per share $0.17 $0.17 $0.51 $0.51
Diluted weighted average
shares outstanding 35,480 31,553 35,412 31,454
(1) For the quarter and nine months ended March 31, 2003, these amounts
include charges of $1.8 million and $3.8 million, respectively, for
integration activities related to the Widia acquisition.
(2) For the quarters ended March 31, 2003 and 2002, these amounts
include charges of $0.4 million and $0.5 million, respectively, for
fees incurred in connection with the company's accounts receivable
securitization program. For the nine months ended March 31, 2003
and 2002, these amounts include similar charges of $1.5 million and
$2.0 million, respectively.
(3) For the nine months ended March 31, 2002, this amount represents a
non-cash charge for the adoption of Statement of Financial
Accounting Standards No. 142, "Goodwill and Other Intangible
Assets."
In addition to reported results under U.S. GAAP for the fiscal periods, the following financial highlight tables also include, where appropriate, a reconciliation of results excluding special items, free operating cash flow and primary working capital (which are non-GAAP measures), to the most directly comparable GAAP measures.
RECONCILIATION TO GAAP - QUARTER ENDED MARCH 31,
Diluted
Earnings
Gross Operating Operating Net Per
Profit Expense Income Income Share
2003 Reported Results $151,661 $122,592 $24,604 $9,699 $0.27
MSSG Restructuring - - 1,077 754 0.02
AMSG Restructuring - - 1,104 773 0.02
Corporate Restructuring - - 278 195 0.01
Widia Integration Costs - MSSG 144 (1,767) 1,911 1,337 0.04
Widia Integration Costs - AMSG - (18) 18 13 -
Total Core Business 144 (1,785) 4,388 3,072 0.09
J&L Restructuring - - 801 561 0.02
FSS Restructuring - - 9 6 -
Total Non-Core Business - - 810 567 0.02
2003 Results Excluding
Special Items $151,805 $120,807 $29,802 $13,338 $0.38
2002 Reported Results $127,647 $95,695 $27,280 $13,144 $0.42
MSSG Restructuring 160 - 1,904 1,295 0.04
AMSG Restructuring 554 - 619 421 0.01
Corporate Restructuring - - 3 2 -
Total Core Business 714 - 2,526 1,718 0.05
J&L Restructuring 507 - 2,375 1,616 0.05
FSS Restructuring - - 264 179 0.01
Total Non-Core
Business 507 - 2,639 1,795 0.06
2002 Results Excluding
Special Items $128,868 $95,695 $32,445 $16,657 $0.53
RECONCILIATION TO GAAP - NINE MONTHS ENDED MARCH 31,
Diluted
Earn./
Loss)
Gross Operating Operating Net Income Per
Profit Expense Income / (Loss) Share
2003 Reported Results $420,113 $343,104 $62,050 $22,998 $0.65
MSSG Restructuring - - 5,926 4,148 0.12
AMSG Restructuring - - 3,182 2,227 0.06
Corporate Restructuring - - 1,236 865 0.02
Widia Integration Costs
- MSSG 198 (3,784) 3,982 2,787 0.08
Widia Integration Costs
- AMSG - (22) 22 16 -
Total Core Business 198 (3,806) 14,348 10,043 0.28
J&L Restructuring - - 1,267 888 0.03
FSS Restructuring - - 38 26 -
Total Non-Core
Business - - 1,305 914 0.03
2003 Results Excluding
Special Items $420,311 $339,298 $77,703 $33,955 $0.96
2002 Reported Results $373,951 $288,711 $60,483 $(227,278) $(7.23)
MSSG Restructuring 160 - 8,141 5,536 0.18
AMSG Restructuring 1,304 - 6,573 4,470 0.14
Corporate Restructuring - - 160 109 -
MSSG ( Adoption of SFAS
142) - - - 168,314 5.36
AMSG ( Adoption of SFAS
142) - - - 82,092 2.61
Total Core
Business 1,464 - 14,874 260,521 8.29
J&L Restructuring 906 - 9,846 6,694 0.21
FSS Restructuring - - 300 204 0.01
Total Non-Core
Business 906 - 10,146 6,898 0.22
2002 Results Excluding
Special Items $376,321 $288,711 $85,503 $40,141 $1.28
SEGMENT DATA:
Quarter Ended Nine Months Ended
March 31, March 31,
2003 2002 2003 2002
Sales:
Metalworking Solutions and
Services Group $297,995 $224,971 $824,143 $666,006
Advanced Materials Solutions
Group 79,039 72,879 231,038 227,498
J&L Industrial Supply 51,729 58,873 148,012 173,997
Full Service Supply 30,480 37,129 91,999 113,343
Total Sales $459,243 $393,852 $1,295,192 $1,180,844
Sales By Geographic Region:
Within the United States $239,565 $253,905 $708,195 $762,140
International 219,678 139,947 586,997 418,704
Total Sales $459,243 $393,852 $1,295,192 $1,180,844
Operating Income (Loss), as
reported:
Metalworking Solutions and
Services Group $24,156 $25,999 $66,488 $68,080
Advanced Materials Solutions
Group 8,757 6,988 25,153 16,699
J&L Industrial Supply 1,323 1,208 5,209 (1,725)
Full Service Supply 31 380 (320) 1,799
Corporate and Eliminations (9,663) (7,295) (34,480) (24,370)
Total Operating Income $24,604 $27,280 $62,050 $60,483
Operating Income (Loss),
excluding special charges:
Metalworking Solutions and
Services Group $27,144 $27,903 $76,396 $76,221
Advanced Materials Solutions
Group 9,879 7,607 28,357 23,272
J&L Industrial Supply 2,124 3,584 6,476 8,122
Full Service Supply 40 644 (282) 2,099
Corporate and Eliminations (9,385) (7,293) (33,244) (24,211)
Total Operating Income $29,802 $32,445 $77,703 $85,503
OPERATING INCOME RECONCILIATION:
QUARTER ENDED MARCH 31,
Corporate
&
Eliminations
MSSG AMSG J&L FSS
2003 Reported
Operating Income $24,156 $8,757 $1,323 $31 $(9,663)
Restructuring 1,077 1,104 801 9 278
Widia Integration Costs 1,911 18 - - -
2003 Operating Income
Excluding Special Charges $27,144 $9,879 $2,124 $40 $(9,385)
2002 Reported
Operating Income $25,999 $6,988 $1,208 $380 $(7,295)
Restructuring 1,904 619 2,376 264 2
Widia Integration Costs - - - - -
2002 Operating Income
Excluding Special Charges $27,903 $7,607 $3,584 $644 $(7,293)
NINE MONTHS ENDED MARCH 31,
Corporate
&
Eliminations
MSSG AMSG J&L FSS
2003 Reported
Operating Income $66,488 $25,153 $5,209 $(320) $(34,480)
Restructuring 5,926 3,182 1,267 38 1,236
Widia Integration Costs 3,982 22 - - -
2003 Operating Income
Excluding Special Charges $76,396 $28,357 $6,476 $(282) $(33,244)
2002 Reported
Operating Income $68,080 $16,699 $(1,725) $1,799 $(24,370)
Restructuring 8,141 6,573 9,847 300 159
Widia Integration Costs - - - - -
2002 Operating Income
Excluding Special Charges $76,221 $23,272 $8,122 $2,099 $(24,211)
RECONCILIATION TO GAAP - CASH FLOW INFORMATION
Quarter Ended Nine Months Ended
March 31, March 31,
2003 2002 2003 2002
Net income $9,699 $13,144 $22,998 $(227,278)
Adoption of SFAS 142 - - - 250,406
Other non-cash items 2,994 (545) 9,330 17,676
Depreciation and amortization 21,839 17,935 61,819 55,237
Change in primary working capital (747) 5,780 17,928 43,996
Change in other assets and
liabilities 6,238 4,729 3,359 (28,013)
Net cash flow provided by operating
activities 40,023 41,043 115,434 112,024
Purchases of property, plant and
equipment (13,955) (10,235) (35,966) (30,349)
Proceeds from disposals of property,
plant and equipment 661 2,274 1,504 5,799
Free operating cash flow $26,729 $33,082 $80,972 $87,474
CONDENSED BALANCE SHEETS
Quarter Ended
3/31/03 12/31/02
ASSETS
Cash and equivalents $17,250 $18,155
Accounts receivable, net of allowance 235,908 199,261
Inventories 408,996 403,530
Deferred income taxes 81,651 80,204
Other current assets 44,286 53,868
Total current assets 788,091 755,018
Property, plant and equipment, net 476,208 480,066
Goodwill and Intangible assets, net 491,987 478,060
Other assets 107,159 104,937
Total $1,863,445 $1,818,081
LIABILITIES
Short-term debt $15,068 $17,591
Accounts payable 120,981 92,114
Accrued liabilities 208,816 171,726
Total current liabilities 344,865 281,431
Long-term debt 565,067 599,425
Deferred income taxes 38,382 46,801
Other liabilities 140,550 135,101
Total liabilities 1,088,864 1,062,758
MINORITY INTEREST 18,070 17,594
SHAREOWNERS' EQUITY 756,511 737,729
Total $1,863,445 $1,818,081
Quarter Ended
9/30/02 6/30/02 3/31/02
ASSETS
Cash and equivalents $14,300 $10,385 $10,705
Accounts receivable, net of
allowance 221,313 179,101 168,094
Inventories 403,590 345,076 351,129
Deferred income taxes 71,084 71,375 82,949
Other current assets 40,110 31,447 28,064
Total current assets 750,397 637,384 640,941
Property, plant and equipment,
net 480,696 435,116 438,505
Goodwill and Intangible assets,
net 467,140 367,992 370,324
Other assets 109,225 83,119 60,458
Total $1,807,458 $1,523,611 $1,510,228
LIABILITIES
Short-term debt $16,992 $23,480 $383,639
Accounts payable 101,823 101,586 93,810
Accrued liabilities 171,045 137,034 152,867
Total current liabilities 289,860 262,100 630,316
Long-term debt 599,615 387,887 164,257
Deferred income taxes 53,475 52,570 52,564
Other liabilities 125,816 96,421 88,720
Total liabilities 1,068,766 798,978 935,857
MINORITY INTEREST 17,685 10,671 8,907
SHAREOWNERS' EQUITY 721,007 713,962 565,464
Total $1,807,458 $1,523,611 $1,510,228
SUPPLEMENTAL INFORMATION AND RECONCILIATIONS
RECONCILIATION TO GAAP: PRIMARY WORKING CAPITAL
Quarter Ended March 31,
2003 2002
Current assets 788,091 640,941
Current liabilities 344,865 630,316
Working capital in accordance with GAAP 443,226 10,625
Excluded items:
Cash and cash equivalents (17,250) (10,705)
Deferred income taxes (81,651) (82,949)
other current assets (44,286) (28,064)
(143,187) (121,718)
Adjusted current assets 644,904 519,223
Short-term debt (15,068) (383,639)
Accrued liabilities (208,816) (152,867)
(223,884) (536,506)
Adjusted current liabilities 120,981 93,810
Primary working capital 523,923 425,413
Primary working capital is defined as accounts receivable, net of allowance for doubtful accounts, plus inventories minus accounts payable.
SOURCE: Kennametal Inc.
CONTACT: Beth A. Riley, Investor Relations, +1-724-539-6141, or Riz
Chand, Media Relations, +1-724-539-4662, both of Kennametal
Web site: http://www.kennametal.com/